If you’re a Financial Controller, Finance Manager, or Accountant, you’ve probably heard this line more than once:

“I want across-the-board cuts — everyone reduces costs by 10%.”

It sounds decisive, even strategic — but does it actually work? More often than not, blanket cost-cutting fails to produce meaningful, sustainable savings. This article explores why and introduces a smarter alternative: Activity-Based Management (ABM).

 

Why Blanket Cost Reductions Fall Short

At first glance, slashing 10% off every cost line seems like a fair and efficient solution. In reality, it often results in confusion, limited savings, and operational strain.

Here’s why:

• Fixed costs remain unchanged: Rent, depreciation, and utilities can’t be negotiated overnight.
• Material costs are market-driven: Suppliers don’t lower prices just because you have a new cost target.
• Financing and telecom costs are contractual: You can’t instantly renegotiate bank interest rates or telecom agreements.
• Strategic assets don’t relocate easily: Warehouses and factories are chosen for long-term benefits, not short-term cuts.

So what’s usually left? Staff costs.
Positions may be frozen, new hires offered lower pay, and layoffs introduced — hurting morale and long-term productivity.

 

The Smarter Path: Activity-Based Management (ABM)

To achieve meaningful cost optimization, companies must shift focus from cutting costs to managing activities.

The principle is simple:

Products consume activities. Activities consume resources.

Activity-Based Management (ABM) is a comprehensive method for identifying, analyzing, and improving the activities that drive costs. When implemented correctly, it delivers three core benefits:

1. Customer Value Improvement
2. Operational Efficiency
3. Sustainable Profitability

 

Tools That Drive ABM: ABC and Process Value Analysis

Management Accountants play a central role in ABM by applying two critical tools:

• Activity-Based Costing (ABC):
  A cost allocation method that traces overhead and indirect costs to specific activities, providing visibility into true cost drivers.
• Process Value Analysis (PVA):
  A technique to evaluate the necessity and efficiency of activities — helping identify which processes add value and which don’t.

Together, ABC and PVA support a strategic cost-advantage approach, allowing leaders to redesign processes rather than merely reduce expenses.

 

Final Thoughts

Cost reduction isn’t just about trimming the fat — it’s about knowing where the fat is, and whether it even needs to exist.

Rather than cutting blindly, ABM empowers finance professionals to cut wisely — aligning cost decisions with business strategy, customer value, and long-term success.

 

Call to Action

Have you experienced across-the-board cuts in your organization? Have you implemented ABM or ABC with success?

Share your insights in the comments. Let’s start a conversation about smarter cost management.